FINANCIAL MARKETS : Inflation Report Pushes Dow Up 19.52; Bond Yields Drop
Reassuring inflation statistics gave stocks a boost Tuesday, and the Dow Jones industrial average finished 19.52 points ahead at 3,879.86. The yield on the 30-year Treasury bond slipped to 7.68% from 7.71% on Monday.
The dollar was generally mixed, but the Canadian dollar rose dramatically against all currencies after a weaker-than-expected showing by Quebec separatists in elections Monday.
In the morning, the Dow gained more than 30 points after the government said consumer prices rose a moderate 0.3% in August.
Advancing issues outnumbered decliners by about a 10-9 margin on the New York Stock Exchange, with 1,142 up, 998 down and 729 unchanged.
The consumer price report was a calming influence after a worrisome report last Friday on wholesale prices that caused a steep selloff in stocks and bonds.
The consumer price index is considered a broader gauge of inflation because it covers services, which are not included in the wholesale price report.
Rao Chalasani, chief strategist at Kemper Securities Group in Chicago, said the CPI numbers suggest inflation isn’t translating readily from producer to consumer prices.
However, he said investor caution is high because of upcoming statistics. The government reports retail sales and regional economic activity today, business inventories Thursday and industrial production Friday. Any of those numbers could reignite inflation fears.
“I don’t think too many people are buying into the optimism” after the CPI report, said Guy Truicko, equity portfolio manager at Unity Management. “Inflation is back and people are worried.”
The Dow sank almost 34 points Friday after the August producer price index rose 0.6%, well above expectations. The blue chip index lost another 14 points Monday.
“A little better market, a little more confidence, and the money returns to the former leaders,” said Bill Allyn, director of listed equity trading at Jefferies & Co.
Meanwhile, gasoline on the New York Mercantile Exchange tumbled to its lowest price in five months, as refiners sold stocks that won’t meet new environmental regulations.
On Dec. 1, gasoline destined for certain regions must have a higher oxygen content to meet the emissions standards in the federal Clean Air Act of 1990.
“People are dumping gasoline in front of this new specification,” said Michael Busby, manager of crude and refined products trading at Northville Industries Corp. in Melville, N.Y.
Gasoline for October delivery tumbled 2.18 cents to settle at 44.94 cents a gallon, the lowest price since March 30. The plunge pushed October crude down 27 cents to $17.12 a barrel, and heating oil fell 0.95 cent to 48.12 cents a gallon.
After the new regulations go into effect, gasoline prices could shoot up, Busby said, because refiners are having difficulty making the reformulated grades.
Among Tuesday’s market highlights:
* Basic materials and technology stocks rose. The two groups had led the market’s recent rally but had been hit by profit taking in the past two sessions.
Aluminum Co. of America rose 1 3/8 to 84, International Paper gained 1 5/8 to 74 1/2 and Microsoft rose 1-7/16 to 57-9/16. Georgia Pacific rose 1 1/4 to 73.
* Semiconductor stocks benefited from release of the latest book-to-bill ratio, a measure of new orders for semiconductors compared to existing shipments. August’s 1.04 reading meant that for every $100 of products shipped, companies got $104 in new orders. Texas Instruments gained 1 to 75 1/8, Intel finished up 3/4 to 65 1/4 and Micron Technology gained 3/4 to 39 7/8.
IBM rose 1 3/8 to 69 1/4 after Merrill Lynch said IBM’s new mainframe product launch represents a significant revenue opportunity.
* CBS dropped 11 3/8 to 337 3/4. Traders cited a downgrade of the stock by Donaldson, Lufkin & Jenrette after the shares rose sharply in the past two sessions.
* Monsanto jumped 4 1/4 to 84 1/2 after saying its current president and chief operation officer, Robert Shapiro, would succeed Richard Mahoney as chairman and chief executive when he retires in March.
* Timberland tumbled 7 1/4 to 38 3/4. A Merrill Lynch analyst cut her earnings forecast on the company.
* The Canadian dollar advanced broadly after Quebec separatists won a key election by a slimmer-than-expected margin, easing near-term worries about the province’s quest for independence. In late New York trading, the U.S. dollar was worth 1.3488 Canadian dollars--the lowest level since early March--down from 1.3680 on Monday. The vote also prompted a rally in Canadian bond prices.
* Gold closed in London at $389.25 an ounce, down from $390.80 on Monday.
* Tokyo stocks ended higher as index-linked buying by investment trusts, coupled with public fund buying in late afternoon, boosted prices in thin trading. The German 30-share DAX index closed the session lower as DAX futures prices slid and players awaited U.S. inflation data. The key indicator shed 18.52 points to end at 2,136.09. But in post-bourse trading after the U.S. data came in better than expected, it rose 21 points to 2,157.15.
